Commodity bloc rallies despite oil weakness

The US dollar saw losses for a second day against a bloc of commodity currencies, including the Canadian dollar, Russian ruble, and South African rand.

The rally defied weaker crude oil prices, which fell again on Tuesday on report of an increase in OPEC output.

Some pointed to a surge in expectations of higher Canadian interest rates. “There was a stale short of the commodity bloc and the move in the CAD has dragged them higher,” Stephen Gallo of Bank of Montreal in London was quoted by Reuters as saying.

At the same time, markets, having already priced in a rate hike, are positioned for Wednesday’s Fed meeting to have dovish undertones. Still there is “plenty of room for a hawkish Fed to trigger the outsized bearish dollar position race for the door”, as Peter Rosenstreich of Swissquote was quoted by the FT as saying.